The Truth About PMI: What It Is and How It Affects Your Mortgage

Let’s Talk About Private Mortgage Insurance (PMI)

Hey everyone, Joe Huljak here, president and owner of Joonago Mortgage, back again for the first time. Today we’re going to talk about a topic that’s important for every homebuyer using a conventional loan: Private Mortgage Insurance, or PMI. You’ll hear about it a lot in the mortgage world so let’s break it down.

What is PMI?

Private Mortgage Insurance is insurance that protects the lender if you default on your loan. Note that PMI does nothing for you, the buyer. It only benefits the lender by reducing their risk.

When Do You Have to Pay PMI?

If you’re buying a home with a conventional loan and can’t put down at least 20% of the home’s purchase price, you’ll likely have to pay PMI. In other words, if your down payment is less than 20%, PMI is almost a given.

How to Avoid PMI

1. Put Down 20% or More: The easiest way to avoid PMI is to put down 20% or more of the home’s purchase price. This option is straightforward but might not be possible for everyone since it requires a lot of cash upfront.
2. Lender Paid Mortgage Insurance (LPMI): Another option is Lender Paid Mortgage Insurance. With LPMI the lender pays the PMI for you but in return, you’ll have a higher interest rate on your loan. It’s a trade-off – you don’t have to pay monthly PMI, but your overall mortgage payment might be higher due to the higher interest rate.

The Bottom Line

It’s not always easy to make this decision. The key is to do the math and see what makes sense for your situation. That’s where I come in! At Joonago Mortgage I can help you make these decisions and find the best way forward for your home financing.

What’s Next?

I’ll be going more in-depth on this topic in another video where I’ll talk about government loans and PMI. Some government loans have PMI, some don’t, and understanding the differences can be helpful for your mortgage planning.